The U.S. Securities and Exchange Commission’s Division of Trading and Markets has finally answered a question that has hovered over independent broker-dealers for years: when can a registered representative’s own LLC or corporation receive transaction-based compensation without itself registering as a broker-dealer? In a no-action letter responding to the Financial Services Institute on November 17, 2025, the staff’s answer is a cautious “yes,” but only if the entity is tightly owned by your registered representatives, sits entirely inside your supervisory structure, and functions as a pure payment and administrative conduit rather than a mini–broker-dealer of its own.

The letter addresses “personal services entities,” or PSEs, that many firms already use for tax and business reasons. Under the framework the staff endorsed, a rep-owned PSE may receive transaction-based compensation solely for routing it to the rep and covering overhead, without triggering a separate broker-dealer registration obligation, so long as specific ownership, control, supervision, and recordkeeping conditions are satisfied. The relief is narrow: the staff has agreed not to recommend enforcement solely because a properly structured PSE receives transaction-based compensation; it does not bless PSEs that stray into broker-dealer activities in their own right.

A PSE in this context is typically an LLC or corporation owned by one or more of your registered reps. The broker-dealer pays transaction-based compensation to the entity, and the entity then pays salaries, bonuses, and benefits to those reps and their staff. Historically, regulators worried that any entity taking a cut of commissions might itself be “engaged in the business” of effecting securities transactions, triggering its own broker-dealer registration obligation. The new letter does not abandon that concern, but it provides a roadmap for when the staff will not recommend enforcement if you use a PSE model within the boundaries it describes.

The SEC staff’s position is targeted but important: a PSE can receive transaction-based compensation if it is essentially a payment and administrative vehicle, and if the real securities business stays with the broker-dealer. Ownership and association are key. The PSE is owned only by individuals who are associated with a single firm, and any rep whose pay flows through the PSE is registered with that same firm. The entity is not allowed to sit between multiple broker-dealers or operate as an independent intermediary.

Control overcompensation is equally important. Under the model the SEC staff described, the broker-dealer—not the PSE—calculates each rep’s transaction-based compensation, receives commissions from product sponsors or counterparties, and maintains books and records that clearly show what each individual rep earns. The PSE can receive a payment, but the economic terms are set and documented by the firm, and regulators and auditors can trace the income back to each associated person.

The PSE must also live fully inside your existing supervisory structure. Its main office is treated as a branch or OSJ, as applicable, and your written supervisory procedures, inspections, and testing apply to that location and to everyone working there. From the SEC’s perspective, the broker-dealer’s systems—not the PSE’s—govern how business is conducted, how records are kept, and how compliance issues are handled.

Just as important is what the PSE does not do. It does not solicit investors, make recommendations, negotiate deal terms, or execute trades in its own name. It does not hold itself out to the public as a broker-dealer. Any unregistered staff at the PSE perform only clerical or ministerial tasks, and their compensation is not directly tied to transaction-based revenue. In other words, the PSE is an internal business and tax vehicle, not a front-end securities firm.

For broker-dealers, this is a good time to inventory existing PSE arrangements, update independent-contractor and PSE agreements to reflect the SEC’s themes of ownership, control, and access to records, and tighten written supervisory procedures to address PSEs expressly. Firms should also remember that the no-action letter speaks only to federal broker-dealer registration. Tax, employment, state securities laws, and SRO rules still apply and may impose additional conditions or limits.

This recently issued relief is not a broad exemption for finders or third-party capital-raisers, and it does not bless PSEs that operate like mini-firms outside your supervision. It does, however, give a clearer roadmap for rep-owned entities that stay in a narrow administrative lane while the broker-dealer remains firmly in charge of the securities business. As with most no-action guidance, the details matter, and firms should review specific structures with counsel before relying on the relief.